Danish emissions trade and wind

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The Danish government has presented a bill detailing the country's National Allocation Plan (NAP) for C02 credits under the EU agreement for a pan-European cap-and-trade market for carbon dioxide emission allowances. According to industry and economics minister Bendt Bendtsen and environment minister Hans Christian Schmidt, the cost of capping CO2 emissions will increase the price of electricity from fossil fuel plant, making wind power relatively cheaper in comparison. The government says its carrot-and-stick instrument for making industry reduce emissions will add EUR 0.0027-0.0054/kWh to the price of electricity.

Opposition parties, with former energy and environment minister Svend Auken leading the way, have criticised the NAP as nothing more than "hot air" that will have no impact on emissions of C02. The EU NAP plan requires governments to restrict emissions by issuing a controlled volume of emission allowances to industry. Unused allowances can be sold on the European emissions trading market, where industry exceeding its allotted quota of allowances can purchase the right to emit more.

Under the NAP proposal, the government aims to reduce its CO2 emissions from 39 to 33 million tonnes from 2005. But the 33 million tonnes is an increase in Denmark's actual annual emissions of CO2 today, says the Auken wing. The opposition parties are also against the government's plan to allow big industry in Denmark to buy extra quotas from surplus allowances that countries such as Russia and the Ukraine are expected to field on the international market in the early years before their industries reach the production levels (and electricity usage) of those in the West.

Meantime, the Danish wind industry lobby has financed a report into the impact on state finances of government purchases of CO2 credits through development of renewable energy projects in countries where the environmental reward is greater than in Denmark because the clean generation replaces far dirtier generation. "Purchase of CO2 quotas based on Danish wind power projects can represent a net benefit to state coffers," says Bjarne Lundager Jensen of the Danish wind industry association.

The conclusion of the report, by ECON Analyse, is grounded in Denmark's specific tax regime and the use of Danish technology in a 21.8 MW project of 13 NEG Micon turbines planned for Türisalu in Estonia. It has been developed with Danish government support and negotiations are now underway for Denmark to buy its CO2 credits.

The report presumes Danish delivery of wind turbines for DKK 157.6 million (EUR 21 million), which will make up 85% of the total project cost of DKK 185.4 million (EUR 24.9 million) -- a higher proportion than the more typical 70%. The report estimates the wind farm will produce credits to cover 453,445 tonnes of CO2 emissions over a period starting in 2005 and closing at the end of 2012. At a price of EUR 5 per credit, the total cost of the CO2 credits will be DKK 15 million (EUR 2 million) at today's prices, DKK 17 million adjusted for inflation.

The benefit to state coffers -- DKK 13 per CO2 credit -- comes from the extra income tax paid by workers employed in Denmark to produce the components and assemble the turbines. "The increased employment and resulting tax income to the state is greater than the cost of buying the quotas," says ECON. It bases its calculation on a flat rate income tax of 50%, which is the norm in Denmark and it includes the financing costs for the EUR 2 million needed to buy the credits. "In the researched wind project, a quota price of DKK 53 (EUR 7) per tonne will be fiscally neutral for the state, while a quota price right up to DKK 89 (EUR 12) is defensible," it adds.

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